Unfair Trade Practices Under the Federal Alcohol Administration Act (93F-003P)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 6, 8, 10 and 11

[Notice No. 794]

RIN 1512-AB10

Unfair Trade Practices Under the Federal Alcohol Administration

Act (93F-003P)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of

the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: ATF is proposing to amend trade practice regulations under the

Federal Alcohol Administration (FAA) Act on tied-house, exclusive

outlets, commercial bribery, and consignment sales by adding standards

for enforcing the ``exclusion'' element where appropriate and by

revising other regulations as the result of an agency review and an

industry petition. Under the FAA Act, ``exclusion, in whole or in part,

of distilled spirits, wine, or malt beverages, sold or offered for sale

by other persons'' is a necessary element of a violation of the tied-

house, exclusive outlets or commercial bribery provisions. Recent court

rulings have raised questions concerning ATF's traditional

interpretation of the term ``exclusion''. ATF intends to use rulemaking

to (1) promulgate a framework for establishing ``exclusion,'' (2)

identify promotional practices which result in retailer control, (3)

identify promotional practices which result in exclusion under the Act,

and (4) identify those practices for which there is no likelihood that

exclusion will result and for which the Bureau will not take action

(safe harbors). Other regulatory amendments are also made as a result

of an ATF review of the regulations and an industry petition submitted

in 1992.

DATES: Written comments must be received by June 27, 1994.

ADDRESSES: Send written comments to: Chief, Wine and Beer Branch,

Bureau of Alcohol, Tobacco and Firearms, P.O. Box 50221, Washington, DC

20091-0221; Notice No. 794.

Copies of written comments in response to this notice of proposed

rulemaking will be available for public inspection during normal

business hours at: ATF Reference Library, Office of Public Affairs and

Disclosure, Room 6300, 650 Massachusetts Avenue NW., Washington, DC

20226.

FOR FURTHER INFORMATION CONTACT: Marjorie Ruhf, Wine and Beer Branch,

650 Massachusetts Avenue NW., Washington, DC 20226; telephone (202)

927-8230.

SUPPLEMENTARY INFORMATION:

The Federal Alcohol Administration Act

The Federal Alcohol Administration Act (hereinafter referred to as

FAA Act or Act) provides for Federal regulation of the alcoholic

beverage industry. The FAA Act contains particular restrictions that

are unique to the alcoholic beverage industry and reflects Congress'

concern with a variety of trade practices and abuses that took place

before, during and immediately after Prohibition. This notice of

proposed rulemaking focuses on four parts of the statute, Exclusive

Outlet (27 U.S.C. 205(a)), Tied-House (27 U.S.C. 205(b)), Commercial

Bribery (27 U.S.C. 205(c)), and Consignment Sales (27 U.S.C. 205(d)).

The supplementary information is divided into two sections. The first

section deals with the subject of exclusion, and the second section

covers other changes proposed as a result of an internal review of

trade practice regulations and an industry petition.

Exclusion

One element which is necessary for these practices to result in

violation of Federal law is ``exclusion, in whole or in part, of

distilled spirits, wine, or malt beverages, sold or offered for sale by

other persons.''

Although exclusion is not defined in the FAA Act or in the current

implementing regulations at 27 CFR parts 6, 8 and 10, ATF has, in the

past, held that ``exclusion in part'' includes causing retailers to

purchase less of a competing brand than they otherwise would have

bought.

In a recent decision, however, Fedway Associates, Inc., et al. v.

United States Treasury, Bureau of Alcohol, Tobacco and Firearms

(Fedway), 976 F.2d 1416 (DC Cir. 1992) the United States Court of

Appeals for the District of Columbia Circuit, held that Congress had

intended something more than just a retailer purchasing less of a

competing brand than it otherwise would have and for a violation to

occur there must also be a tie or link between a supplier and retailer

that at least threatens the retailer's independence.

The court based this conclusion on several points. The court said

``exclusion'' means to exclude a rival product from the marketplace by

some direct action of the violator. Merely taking some action which

influences a retailer not to purchase a rival product is not exclusion

under the Act if the retailer's response is the result of a free

economic choice. This interpretation of exclusion as meaning the

shutting out or expelling of a rival's product, according to the court,

is consistent with conduct addressed by the Act such as tied-house,

commercial bribery and exclusive outlets. Any broader interpretation

would, in the view of the court, likely result in restriction of pro-

competitive activities.

The Fedway court was concerned that ATF enforcement actions could

hinder legitimate competitive activities. Consequently, the opinion

states that if ATF suspects a particular practice places retailer

independence at risk then the agency must provide substantial support

backing up its suspicion. This substantial support is especially

necessary where the anticompetitive nature of the means to induce is

``nowhere apparent on its face.''

Factual or substantive proof is necessary, the court stated, to

ensure that the Government does not take an overly-broad enforcement

posture in its efforts to prevent potential threats to retailer

independence and risk outlawing conduct that fosters a competitive

alcohol market. In the Fedway proceeding, the court held this factual

basis was not met because the only datum or evidence presented was the

fact that certain retailers purchased less of a rival product.

In summary, the court offered the following guidance about this

statutory element:

Congress, we are satisfied, used ``exclusion'' to indicate

placement of retailer independence at risk by means of a ``tie'' or

``link'' between the wholesaler and the retailer or by any other

means of wholesaler control.

[We demand] a factual showing that retailer independence is

potentially threatened. . . .

[ATF should] take reasonable account of both policy interests

underlying the [trade practice] provisions. . . . that the alcohol

industry requires special oversight and regulation. . . . and the

value of pro-competitive wholesale promotions. This value derives

not only from the traditional benefits of competition in terms of

lower prices and improved quality, but also . . . from the fact that

a competitive alcohol market helps deter the formation of a corrupt

black market.

Finally, in arriving at a reasonable interpretation of

``exclusion''. . . the Bureau must take care to distinguish

rationally between those promotions it decides are lawful and those

it decides are not.

Proposed Regulations

The proposed amendments and additions to the regulations on the

subject of exclusion follow a framework which ATF believes is

consistent with the statutory interpretation of exclusion adopted by

the Fedway court as well as similar concerns previously raised in

Foremost Sales Promotions, Inc. v. Director, Bureau of Alcohol, Tobacco

and Firearms, 860 F.2d 229 (7th Cir. 1988) (Foremost). The courts in

both Fedway and Foremost found that ``exclusion'' as used in the FAA

Act cannot occur without a relationship or arrangement between the

industry member and the retailer which directly or indirectly threatens

the retailer's independence.

ATF proposes to amend regulatory parts of title 27 CFR relating to

exclusive outlet (part 8), tied-house (part 6), and commercial bribery

(part 10), by adding new subparts on exclusion. Even though the

exclusive outlet provision was not involved in the Fedway or Foremost

decisions, the provision is impacted by the decisions since the

provision requires the showing of exclusion in order for a violation to

arise.

ATF proposes to describe exclusion, in whole or in part, of

distilled spirits, wine or malt beverages sold or offered for sale by

others as occurring (1) when a practice places retailer independence at

risk by means of a tie or link between the industry member and retailer

or by any other means of industry control over the retailer, and (2)

such a practice by an industry member, whether direct, indirect, or

through an affiliate, results in the retailer purchasing less that it

otherwise would have of a competitor's product. The proposed

regulations will contain a set of criteria by which ATF will determine

the existence of the first element. These criteria include the duration

of the practice or promotion, the degree to which a practice involves

an industry member in the day-to-day operations of a retailer, and, in

some cases, the non-discrimination feature of the practice where it is

available to all retailers. Exclusion will exist when ATF can establish

the presence of both of these elements.

In addition, ATF proposes to identify certain practices which it

believes, by their very existence, place retailer independence at risk.

When such practices are undertaken, ATF would determine through the

course of an investigation whether the other exclusionary element set

forth above is present.

In addition, ATF proposes to revise and consolidate several of the

provisions contained in Subpart D of Part 6 of the current regulations

which find that certain practices will not result in exclusion under

the FAA Act (that is, safe harbors). The classification of these

practices is intended to provide guidance to the regulated industry so

that legitimate product marketing programs can be developed without the

uncertainty of a potential Federal enforcement action. Legitimate

product marketing encourages competition, by large and small businesses

alike, on the basis of price, product quality and service.

ATF emphasizes that the revision of the trade practices regulations

is an ongoing process. Any interested person may petition for a rule

change, under 27 CFR 71.41(c).

Exclusive Outlet

Section 105(a) of the FAA Act makes it unlawful for an industry

member to require, by agreement or otherwise, any retailer engaged in

the sale of alcoholic beverages to purchase any such product from such

person to the exclusion in whole or in part of alcoholic beverages sold

or offered for sale by other persons in interstate or foreign commerce,

provided one of the three interstate or foreign commerce jurisdictional

clauses is met.

Retailer independence is threatened in an exclusive outlet

arrangement when the ability of the retailer to decide which brands of

alcoholic beverages to purchase is restricted or impeded. In the Fedway

context, the question is whether any restriction negates the retailer's

free economic choice or has been imposed by the industry member.

In that regard, the proposed regulations identify two practices

that clearly result in exclusion under section 105(a) of the Act. The

first practice involves purchases of distilled spirits, wine, or malt

beverages by a retailer as a result, directly or indirectly, of a

threat or act of physical or economic harm by the selling industry

member. The second practice involves contracts between an industry

member and a retailer which require the retailer to purchase distilled

spirits, wine or malt beverages from that industry member and expressly

restrict the retailer from purchasing, in whole or in part, such

products from another industry member. In both situations, exclusion of

a competitor's products results directly from the arrangement or the

contract without any action by the retailer. Further, ATF views an

exclusive outlet arrangement as including a situation where the

retailer offers exclusivity privileges and the industry member accepts

that offer. In other words, it does not matter whether the requirement

originates with the industry member or the retailer; rather, the

requirement is within the exclusive outlet prohibition so long as it is

part of the bargain.

Tied-House

Section 105(b) of the FAA Act makes it unlawful for an industry

member to induce through any of the following means, any retailer

engaged in the sale of alcoholic beverages to purchase any such

products from such person to the exclusion in whole or in part of

alcoholic beverages sold or offered for sale by other persons in

interstate or foreign commerce, provided one of the three

jurisdictional clauses is met:

(1) By acquiring or holding any interest in any license with

respect to the premises of the retailer; or

(2) By acquiring any interest in real or personal property owned,

occupied, or used by the retailer in the conduct of the business; or

(3) By furnishing, giving, renting, lending, or selling to the

retailer, any equipment, fixtures, signs, supplies, money, or other

things of value, subject to the exceptions prescribed by regulations,

having due regard to public health, the quantity and value of articles

involved, established trade customs not contrary to the public interest

and the purposes of the subsection; or

(4) By paying or crediting the retailer for any advertising display

or distribution service; or

(5) By guaranteeing any loan or repayment of any financial

obligation of the retailer; or

(6) By extending to the retailer credit for a period in excess of

the credit period usual and customary to the industry for the

particular class of transactions as ascertained by the Secretary and

prescribed by regulation; or

(7) By requiring the retailer to take and dispose of a certain

quota of any of such products.

Retailer independence can be threatened in a tied-house arrangement

between an industry member and a retailer when the arrangement involves

a continuing business relationship which restricts the retailer's

ability to make free economic choices on which brands of products to

purchase. In effect, competition is restricted because the retailer who

is dependent on or tied to an industry member cannot make free and

rational business choices on whether to make a current purchase from

another industry member based on current business considerations such

as consumer demand or lower prices offered by the competition.

The proposed regulations identify threats to a retailer's

independence which include: A wholesaler's use of partial ownership of

a retailer to control the retailer's purchases of alcoholic beverages,

sales where the wholesaler conditions the purchase of one distilled

spirits product on the retailer purchasing another distilled spirits

product at the same time, and wholesaler control over the retailer

through controlling the resetting of the products on a retailer's

premises.

Slotting fees are also included in this proposed category. These

fees are paid to a retailer in order to obtain premium shelf space.

Data and information on the effect of such fees is requested, rather

than solely statements of preference by a particular industry member.

As discussed in the material relating to consignment sales, the

prohibition on other than a bona fide sale is defined to include sales

in connection with which the industry member bears the cost of display

by purchasing or renting a trade buyer's shelf space to be occupied by

such products. Accordingly, slotting fees in these situations are

within the consignment sale proscriptions. Comments are sought on

whether the slotting fee should be addressed in both tied-house and

consignment sale regulations or are more appropriately covered by only

one of the provisions.

With respect to the practices listed in proposed Sec. 6.152, ATF

will be required to determine whether the practice results in the

retailer purchasing less than it otherwise would have of a competitor's

product.

The proposed regulations also identify certain practices that will

not result in exclusion. These are the practices allowed under the

regulatory exceptions to the tied-house provisions (safe harbors). For

instance, the proposed regulations recognize that certain retail

activities of a temporary nature, such as weekend events and community

festivals, are also so minor in the retail marketplace so as not to

justify Federal intervention. (Revisions to these regulatory exceptions

are also proposed in this notice and discussed in detail below.)

Commercial Bribery

Section 105(c) of the FAA Act makes it unlawful for an industry

member to induce through any of the following means, any trade buyer

engaged in the sale of alcoholic beverages, to purchase any such

products from such person to the exclusion in whole or in part of

alcoholic beverages sold or offered for sale by other persons in

interstate or foreign commerce, provided one of the three

jurisdictional clauses is met:

(1) By commercial bribery; or

(2) By offering or giving any bonus, premium, or compensation to

any officer, or employee, or representative of the trade buyer.

Commercial bribery situations involve the receipt of money or a premium

by an officer, employee, or representative of the trade buyer. Payment

made directly to business entities (i.e., the corporation, partnership,

or individual owning the business) for the use of the business does not

constitute a commercial bribe. The independence of the trade buyer is

threatened in a commercial bribery situation because the officer,

employee, or representative of the trade buyer is making a purchasing

decision as a result of the money or premium received personally and

not based on business or marketing factors which further the interests

of the trade buyer itself.

The proposed regulations identify promotional conduct by an

industry member that involves the payment of money or another premium

to an employee or representative of a trade buyer without the knowledge

of the trade buyer as practices under the Act that place retailer

independence at risk. The Fedway court noted that previous case law

upheld as actionable these types of payments. These payments were

viewed as anti-competitive because one competitor gained a competitive

advantage over another competitor by reason of a ``secret and corrupt

dealing with employees or agents of prospective purchasers.'' See,

American Distilling Co. v Wisconsin Liquor Co., 104 F.2d 582 (7th Cir.

1939). Even where such practices exist, ATF would still be required to

demonstrate that they affect the trade buyer's purchases in order to

establish exclusion. With respect to those practices not mentioned

herein, ATF would be required to demonstrate the existence of both of

the elements of exclusion set forth above.

Criteria for Determining Retailer Independence

ATF is proposing criteria by which to evaluate whether or not a

particular practice places retailer independence at risk. Elements

which have repeatedly been mentioned in court cases are degree of

control exercised over trade buyers' purchasing decisions, duration of

the practice, indiscriminateness, contractual or other enforceable

requirements. The goal of regulating trade practices in the alcoholic

beverage industry has been identified as healthy competition in order

to insure the best possible price, quality and selection for the

consumer and to prevent formation of a corrupt black market.

The proposed criteria are indications that a particular practice,

other than those in Secs. 6.152, 8.52, and 10.52, places retailer

independence at risk. A practice need not meet all of the criteria

specified in order to place retailer independence at risk.

(a) The practice restricts or hampers the free economic choice of a

retailer to decide which products to purchase and the quantity in which

to purchase them for sale to consumers.

(b) The industry member obligates the retailer to participate in

the promotion to obtain the industry member's product.

(c) The retailer has a continuing obligation to purchase or

otherwise promote the industry member's product.

(d) The retailer has a commitment not to terminate its relationship

with the industry member with respect to purchase of the industry

member's products.

(e) The practice involves the industry member in the day-to-day

operations of the retailer. For example, the industry member controls

the retailer's decisions on which brand of products to purchase, the

pricing of products, or the manner in which the products will be

displayed on the retailer's premises.

(f) The practice is discriminatory in that it is not offered to all

retailers in the local market on the same terms without business

reasons present to justify the difference in treatment.

Other Proposed Changes

In 1988, ATF designated an agency task force to review the trade

practice regulations and ATF's enforcement experience, since 1980, and

determine whether revisions were needed. ATF determined that certain

regulations may need to be modified or clarified to provide guidance to

the industry on ATF's interpretations of the trade practice statute.

Such guidance has been provided by rulings and industry circulars. This

notice proposes incorporating these rulings and industry circulars into

the regulations.

In addition to changes identified in the Bureau's own review, this

notice responds to changes suggested in a February, 1992, petition

filed by representatives of the Distilled Spirits Council of the United

States, Inc. (DISCUS), the National Association of Beverage Importers,

Inc. (NABI), Wine and Spirits Wholesalers of America, Inc. (WSWA), the

National Licensed Beverage Association (NLBA), and the National Liquor

Stores Association, Inc. (NLSA). This petition superseded an earlier

petition filed by DISCUS and NABI with ATF. ATF requested that DISCUS

and NABI work with all segments of the alcohol beverage industry to

reach a consensus concerning the various proposals to revise the trade

practice regulations. The 1992 petition reflects a culmination of that

effort by the supplier, wholesaler, and retailer organizations noted

above.

ATF is proposing to revise or add regulations in 27 CFR Parts 6, 8,

10, and 11, in areas suggested by the industry petition and in trade

practice areas identified by ATF as appropriate for rulemaking. The

proposed revisions and additions are discussed below.

Scope of Parts 6, 8, 10 and 11

ATF is proposing to revise Secs. 6.1, 8.1, 10.1 and 11.1 to reflect

the recodification of the Federal Administration Act which included

renumbering the trade practice section from section 5 to section 105

and to better reflect the function of the proposed regulations.

Administrative Provisions in Parts 6, 8, 10 and 11

ATF proposes adding new regulations stating that ATF officers are

authorized to examine relevant records of an industry member and to

subpoena relevant records from any person. These new regulations would

be codified as Secs. 6.5, 8.5, 10.5 and 11.5. Current regulations do

not contain any reference to ATF's statutory authority to examine and

subpoena records and to require reports from industry members.

Section 102(c) of the FAA Act (27 U.S.C. 202(c)) incorporates by

reference the provisions of sections 49 and 50 of title 15, U.S.C. of

the Federal Trade Commission Act which vests in ATF investigative

subpoena authority and the right to examine and copy relevant data

subject to an FAA Act investigation. In addition, section 102(d)

provides authority to require such reports as are necessary to

effectuate the purposes of the statute.

Pursuant to 15 U.S.C. 49 and 50 as made applicable by section

102(c), ATF may examine, at all reasonable times, any documentary

evidence which is necessary to determine whether the person,

partnership, or corporation being investigated or proceeded against

violated the FAA Act. The right to examine includes the right to copy

any such documentary evidence. In addition, section 49 authorizes the

issuance of a subpoena for any person, partnership, or corporation to

produce records or give testimony relevant to an investigation of a

violation of the FAA Act.

In addition, pursuant to section 102(d) of the FAA Act, new

regulations are proposed for parts 6, 8, and 10, authorizing the

regional director (compliance) to require a letter report from industry

members regarding information on sponsorships, advertisements,

promotions, and other activities conducted by, or on behalf of, or

benefiting the industry member. The reporting requirement will be used

on a case-by-case basis, rather than as a recurrent and periodic

reporting requirement such as a monthly report of activities applying

to all industry members. ATF does not feel that a reporting requirement

is needed for part 11, Consignment Sales.

Meaning of Terms Revisions in Parts 6, 8, 10 and 11

ATF is proposing to add the terms ``ATF officer'' and ``Director''

to the definitions in 27 CFR 6.11, 8.11, 10.11, and 11.11 to correspond

to the terms in the proposed administrative provisions in Secs. 6.5,

8.5, 10.5, and 11.5, discussed above.

ATF is proposing to define the term ``brand'' in 27 CFR 6.11, since

a number of dollar limitations on things of value which may lawfully be

given to retailers is on a ``per brand'' basis. The definition proposed

is drawn from ATF Ruling 81-1, Q.B. 1981-2, page 27, but ATF has

narrowed the proposed definition to exclude changes in the color or

design of the label.

ATF is proposing adding the term ``Regional director (compliance)''

to the definitions in 27 CFR 6.11, 8.11 and 10.11 to correspond to the

term in the proposed administrative provisions.

The petitioners believe that the definition of ``retailer'' should

be revised in 27 CFR parts 6 and 8. The current provision excludes

wholesalers who make incidental retail sales representing less than 5

percent of their sales during the preceding two months. The petitioners

state that a supplier cannot know whether the wholesaler's retail sales

are within the 5 percent limitation and suggest eliminating that

standard. The petitioners also believe that the definition of

``retailer'' should be clarified in order to ensure that this

definition is consistent with Sec. 6.2 which defines the territorial

extent of part 6 of the regulations.

ATF believes that removal of the 5 percent limitation would make

the definition too broad. For example, without the percent limitations,

a wholesaler who makes a single sale to a consumer is deemed to be a

retailer. Also, the petitioners' proposed definition would exclude, as

a retailer, someone within the United States who makes sales for

consumption outside of the United States; i.e., a duty free shop. The

FAA Act itself does not allow this type of exception to the territorial

coverage of the law. Therefore, ATF does not agree with this proposal.

For the same reasons, ATF does not agree with the proposed amendment to

the definition of ``retailer establishment.''

ATF is proposing to change the term ``retailer establishment'' in

27 CFR 6.11 to ``retail establishment'', since that is the term used in

27 CFR part 6 regulations. The term ``retail establishment'' in 27 CFR

8.11 will be removed because the term is not used in 27 CFR part 8

regulations.

Part 6--``Tied-House''

Sections 6.25 Through 6.33, Interest in Retail Licensee

The petitioners state that these sections of the regulations

provide identical treatment concerning an interest of an industry

member in a license with respect to a retailer's premises (Secs. 6.25-

6.27) and in real or personal property owned, occupied, or used by the

retailer in the conduct of the business (Secs. 6.31-6.33). The

petitioners feel that combining the provisions, which they believe

parallel each other (Secs. 6.25 and 6.31; 6.26 and 6.32; and 6.27 and

6.33), will enhance the simplicity and clarity of the rules.

Further, the petitioners recommend clarifying changes to existing

regulations to ensure that there is no misunderstanding that a

violation of the FAA Act does not occur merely upon a finding of the

existence of the means to induce. The petitioners believe that the

wording of several existing regulations describing various means to

induce results in industry confusion since such sections are written in

terms describing ``prohibited means to induce.''

The petitioners believe that the term ``prohibited'' should be

deleted from such sections in order to avoid any contention or

confusion that this provision, read separately from Sec. 6.21, allows

for finding a violation of the FAA Act without also establishing that

the means to induce results in exclusion. While the petitioners

recognize that these sections are subject to the general application

provisions of Sec. 6.21, which states that these means to induce are

unlawful only if they result in exclusion, they believe such a change

will help reduce the possibility of industry confusion on this issue.

The same request was made concerning Secs. 6.31, 6.41, 6.51, 6.61, 6.65

and 6.71, which all contain similar language.

ATF does not object to revising the language in Secs. 6.25, 6.31,

6.41, 6.51, 6.61, 6.65 and 6.71. ATF proposes to adopt this suggestion

but would replace the word ``inducement,'' with ``means to induce,'' in

order to correspond with the wording of the FAA Act. Conforming changes

were also made to the language in Secs. 6.27 and 6.33.

ATF does not believe that the provisions of Secs. 6.25 through 6.33

should be combined in the various ways proposed by the petitioners.

From a structural point of view, merging Secs. 6.25 through 6.33

fundamentally alters the organization of subpart C of part 6. Subpart C

is divided into topics (with titles) which parallel sections 105(b)(1)

through (7) of the FAA Act. The proposed merger of the corresponding

sections will mean that the regulations applicable to an interest in

retail property under section 105(b)(2) will be contained in a group of

the regulations categorized under an interest in a retail license under

section 105(b)(1). ATF believes that it may be confusing for a person

or industry representative relying on the part 6 regulations to look

under the regulations on a retail license for a regulation relating to

an interest in retail property.

Section 6.42, Third Party Arrangements

ATF's review of its regulations disclosed that some confusion

exists over the breadth of the proscription on indirect means to

induce. Some industry members incorrectly view the two examples in

Sec. 6.42 as exclusive of the situations covered by the regulation.

Additionally, ATF believes some industry members interpret the examples

as meaning the third party receiving the means to induce must be an

agent of an individual retailer.

By enacting the phrase ``directly or indirectly or through an

affiliate,'' Congress intended the broadest possible application of the

proscriptions of the FAA Act. The term ``indirectly'' encompasses more

than simply trade practice activities with agents of retailers. It

covers such activities with any representative of a retailer or

industry member, whether or not such representative is technically an

agent of the retailer or industry member. Thus, an industry member

providing the means to induce to any third party who will pass the

means on to the retailer, or use them in a manner to benefit the

retailer, is indirectly providing the means to induce to the retailer.

Accordingly, ATF proposes revising Sec. 6.42 to clarify that the

examples are simply illustrative and not exclusive of the situations

resulting in indirect inducements. A revision to the final sentence is

proposed for clarity.

Section 6.43, Sale of Equipment

The petitioners recommend deleting the last sentence of Sec. 6.43.

The petitioners believe that negotiation by an industry member with an

equipment company for a special price for a retailer for equipment

should not be a means to induce unless the industry member subsidizes

the special price.

ATF does not agree. The means to induce is not the special price,

but the service provided by the industry member in negotiating with the

equipment company, or using its influence on behalf of the retailer. In

the past, ATF has experienced cases in which a retailer, believing that

it received special price consideration, altered its buying patterns

resulting in exclusion of a competitor's products. Also, a conforming

change to the cross-reference is proposed.

Section 6.46, Outside Signs

ATF proposes to make outside signs an exception in subpart D. See

the discussion under proposed Sec. 6.102.

Section 6.47, Items Intended for Consumers

The petitioners recommend deleting this section because they

believe that it is redundant and unnecessary in light of Sec. 6.93 and

their proposed revisions to Sec. 6.87.

ATF proposes to remove this section since the general prohibition

in Sec. 6.41 covers things of value not specifically excepted in

subpart D. Those of the examples listed in Sec. 6.47 which ATF proposes

to allow will be listed in the proposed revision of Sec. 6.84, Point of

sale advertising and consumer advertising specialties.

Section 6.52, Cooperative Advertising

ATF proposes that the phrase ``placed by the retailer'' be deleted

from this section and that language be added to emphasize that it does

not matter whether the retailer or the industry member places the

advertisement. The means to induce to be addressed here is the

cooperative nature of the transaction and the benefit received by the

retailer.

For clarity, ATF proposes cross-referencing Sec. 6.52 to Sec. 6.98,

Advertising Service.

Section 6.67, Sales to a Retailer Whose Account is in Arrears

ATF's current position is contained in Revenue Ruling 54-162, 1954-

1 C.B. 340. On August 1, 1979, ATF proposed a regulation (Notice No.

327, 44 FR 45298) on credit arrears which would have provided that a

supplier could continue to sell to a retailer, with unpaid purchases

existing in excess of 30 days, without violating the extension of

credit provision if the retailer either made payments in accordance

with Revenue Ruling 54-162 or the amount of arrears did not exceed an

average purchase by the retailer from the supplier over the preceding 4

month period.

Commenters on the proposal objected to the proposal stating that it

would require extensive bookkeeping checks or it might force repayment

of large outstanding debts in order to keep dealing with a wholesaler.

Several commenters recommended that ATF simply adhere to the credit

requirements imposed by State law. ATF withdrew the proposal (T.D. ATF-

74, 45 FR 63242, September 23, 1980) from further consideration. ATF is

again raising the issue and proposing to adopt in the regulations the

position stated in Revenue Ruling 54-162. However, comments on other

possible approaches will be considered.

Section 6.71, Quota Sales and Section 6.72, Tie-in Sales

In addition to the language change to Sec. 6.71 discussed under

Sec. 6.41, the petitioners propose to eliminate the tie-in prohibition

in Sec. 6.72 and consolidate the remaining provisions into Sec. 6.71.

The petitioners recommend deleting the first two sentences of Sec. 6.72

because they believe that there is no statutory basis for this

regulation under the FAA Act. The petitioners state that the classic

``tying relationship'' prohibited by the antitrust laws is not

addressed by section 105 of the FAA Act notwithstanding that subsection

105(b) of the FAA Act bears the heading ``Tied-House.'' The petitioners

further state that prohibitions against tie-in agreements are covered

adequately by the Federal antitrust laws.

The tie-in sale described in the regulations is a form of quota

sale covered by the Act. Moreover, ATF feels that Sec. 6.71 and

Sec. 6.72 are distinct from one another and should be kept separate to

insure clarity and foster understanding of the regulations. The fact

that another Federal law may apply to such a practice is not relevant

to whether such a practice is covered by the FAA Act. Additionally, ATF

proposes revising Sec. 6.72 to cover expressly a particular type of

transaction as a tie-in sale.

Subpart D--Exceptions

Many changes discussed in the first section of the Supplementary

Information on Exclusion affect this subpart. The discussion which

follows is limited to specific requests by the industry or findings of

ATF's own internal review which were not discussed in that earlier

section.

Section 6.81, General

The petitioners propose amending Sec. 6.81(a) by deleting the

second sentence which prohibits an industry member from conditioning

the providing of items or services allowed under subpart D on the

purchase of distilled spirits, wine, or malt beverages. ATF agrees this

prohibition is not necessary for most items, and will remove the

prohibition from the general section and place it in the specific

sections where such conditioning has been a concern, for instance,

Sec. 6.83 on product displays.

Section 6.81(b), Recordkeeping requirements, requires industry

members to maintain certain records which can be used to substantiate

claims that items provided to retailers are within the subpart D

exceptions to the tied-house prohibitions. The petitioners propose

deleting Sec. 6.81(b) in its entirety, thereby eliminating all

recordkeeping requirements. The petitioners state that ``(t)his change

should be adopted because the FAA Act neither provides nor suggests

that any such requirements can be imposed.''

The petitioners further state that if it is decided not to delete

Sec. 6.81(b) in its entirety, they recommend the addition of language

to this paragraph to make it clear that no separate violation of the

FAA Act shall arise from the failure of an industry member to maintain

records in accordance with the requirements of Sec. 6.81(b). The

petitioners believe that the FAA Act neither creates nor supports the

existence of any such violation of the FAA Act.

The proposal to eliminate the requirement to keep records which

substantiate industry members' claims that items provided retailers are

within the exceptions would negate ATF's capability to verify

compliance with the dollar limitations and any other requirements of

subpart D. The limitations in each exception section of the regulations

would be unenforceable if ATF had no way to verify compliance with the

requirements of such exceptions. Where the industry member fails to

keep the required records, the industry member is not eligible for the

regulatory exception in that particular transaction. No separate

recordkeeping violation would be charged.

Section 6.82, Cost Adjustment Factor

While the petitioners do not request a specific change to this

section, they request that ATF explore alternate methods which would be

cost effective for ATF to convey this information in a manner that

continues to ensure that all permittees are apprised of the annual

dollar adjustments. Instead, ATF proposes to delete this section and

periodically review the amounts if necessary.

Section 6.83, Product Displays

The petitioners recommended amending the definition of product

display to substitute ``* * * and similar items the primary function of

which is to hold, display or shelve consumer products.'' for ``* * *

and the like,'' which appears in the current regulation. ATF is

incorporating this change in its proposed revision, but proposes the

phrase ``hold and display'' for clarity.

The petitioners also requested that ATF amend the dollar limitation

in the regulation to reflect the current adjusted rate. Instead, ATF

proposes a $500 per brand at any one time per retail establishment

limitation for the current limitation of $100 (as adjusted) per year

per brand per retail establishment. As noted earlier, ATF proposes

narrowing the definition of the term ``brand'' and requests comments on

the definition.

Although the general prohibition against an industry member

imposing conditions on receipt of items allowed in subpart D has been

removed from Sec. 6.81, the proposed Sec. 6.83 states that giving or

selling product displays may be conditioned upon the purchase of the

distilled spirits, wine or malt beverage product advertised thereon in

a quantity only necessary for the initial completion or use of the

product display. The loan or rental of product displays would not be

within the exception. Such a continuing tie would not be consistent

with the intent of the Act. Industry members have long argued that they

should be allowed to condition receipt of product displays on the

purchase of a limited quantity of the product advertised. The dollar

limit of $500 per brand, coupled with the requirements for permanently

inscribed advertising and transfer of ownership of product displays to

the retailer minimizes the inducement value to the retailer. The

combination of these factors allows product displays to be excepted

from the regulations of Part 6, and would be the basis for allowing the

industry member to condition receipt of such materials as described

above.

Section 6.84, Point of Sale Advertising and Consumer Advertising

Specialties

Promotions and practices currently allowed under the regulatory

exceptions to the tied-house provisions are safe harbors. This notice

proposes a revision to those exceptions which would combine several of

the current exceptions into one general regulatory section. The

approach of having a single general section addressing all of the

similar activities gives greater flexibility to the industry.

The proposed regulations combine the exceptions listed in

Secs. 6.84, 6.85, 6.86 and 6.87, (inside signs, retailer advertising

specialties, wine lists and consumer advertising specialties) into a

revised Sec. 6.84, Point of sale advertising and consumer advertising

specialties. Items intended for consumers currently identified in

Sec. 6.47 are also included in the proposed listing of exceptions. The

petitioners requested that ATF amend the dollar limitation to reflect

the adjusted rates, but instead, under ATF's proposed revision there

will be no limit to the specified point of sale (POS) materials

furnished by an industry member to a retail establishment.

The petitioners also requested that the term ``wine lists'' be

expanded to include all alcoholic beverages. Instead, the proposed

Sec. 6.84 permits all lists or menus, subject to the conditions in

paragraph (c) of the section.

Section 6.86, Temporary Retailers

ATF proposes adding a new section which will allow furnishing

things of value to a temporary retailer.

Section 6.88, Glassware--Section 6.89, Tapping Accessories--Section

6.90, Supplies--Section 6.97, Coil Cleaning Service

The petitioners recommend that these four sections be combined in a

new section 6.88, under the title ``Equipment and supplies,'' because

they deal with similar types of merchandise and impose similar

conditions. As with other subpart D exceptions which combine similar

types of merchandise, (viz., Secs. 6.83, 6.87 and 6.89), the

petitioners feel that combining these items in one section will enhance

the simplicity and clarity of the rules.

The petitioners also recommend several other revisions to this

consolidated section. They believe that the coverage of the coil

cleaning service should be extended from ``a retailer of wine or malt

beverages'' to ``a retailer.'' This amendment would provide equal

treatment for wine, malt beverages and distilled spirits.

The petitioners also recommend substituting the term ``dispensing

accessories'' in section 6.88 for ``tapping accessories'' because the

former term more accurately describes the modern type of accessories

falling within this category and reflects present marketplace practices

where, for example, wine also is served by dispensing equipment.

The petitioners also feel that cold plates should be added to the

list of examples of ``dispensing accessories'' and, as with the present

requirements for glassware and tapping accessories, carbon dioxide gas

or ice may be sold at a price not less than the cost to the industry

member who initially purchased it.

The petitioners' proposed Sec. 6.88 would read as follows:

``Sec. 6.88 Equipment and supplies. (a) Definition. Equipment and

supplies means glassware, dispensing accessories, carbon dioxide gas or

ice. Dispensing accessories include items such as standards, faucets,

cold plates, rods, vents, taps, tap standards, hoses, washers,

couplings, gas gauges, vent tongues, shanks and check valves. (b)

Application. (1) An industry member may sell equipment or supplies to a

retailer if the equipment or supplies are sold at a price not less than

the cost to the industry member who initially purchased it, and if the

price is collected within 30 days of the date of the sale. (2) If

dispensing accessories are sold pursuant to (1), the industry member

also may install them at the retailer's establishment. (c) Coil

cleaning service may be furnished, given or sold to a retailer.''

While the petitioners' proposal to combine various sections into

one all inclusive section covering equipment and supplies is

structurally logical and the terminology change from tapping equipment

to dispensing equipment has merit, some of the items listed in the

proposed section have not in the past been recognized as exceptions by

ATF.

ATF is consolidating these sections with the following additional

changes. ATF proposes to revise the definition of glassware to include

similar containers made of materials other than glass. Currently,

Sec. 6.89 enumerates the type of tapping accessories which can be sold,

at cost, to a retailer. As proposed, the regulation also specifies that

the industry member must pass on the cost of initial installation to

the retailer.

The proposed regulation would expand the original coil cleaning

service exception currently in Sec. 6.97 to cover distilled spirits, as

well as wine and malt beverages. Keeping the coils clean and free of

contamination is clearly in the interest of public health. Therefore,

it is in the public interest to allow such services without a dollar

limit.

The current regulation allows industry members to sell carbon

dioxide gas to retailers. The regulation does not provide for the sale

of other gases, such as nitrogen, which are used in various existing

alcoholic beverage dispensing systems. ATF proposes modifying this

regulatory section to allow industry members to sell any gas to a

retailer provided it is used in a beverage dispensing system. This

proposal should not be viewed as sanctioning treatment which would

change still wine to sparkling wine.

Section 6.91, Samples

The current section allows an industry member to furnish or give

samples of distilled spirits, wine or malt beverages to a retailer. The

petitioners recommend amending this section to provide that industry

members may furnish a maximum of 750 milliliters (mls.) of distilled

spirits samples to qualifying retailers. The 500 milliliter (ml.)

container is no longer an authorized size for distilled spirits.

Accordingly, the petitioners suggest that ``750 ml.'' should be

substituted for ``500 milliliters'' in the second sentence of this

section and the third sentence of this section should be eliminated in

its entirety.

ATF agrees with the petitioners that the reference to the obsolete

500 ml size be replaced, but proposes a maximum of 3 liters for either

distilled spirits or wine.

ATF also proposes amending the current regulation by limiting the

number of commonly owned retail establishments (not to exceed four per

retailer) which can be given samples. This amendment would allow for a

control State or chain retailer to receive sufficient samples to

determine whether to purchase a product.

Section 6.93, Combination Packages

In general, Sec. 6.93 addresses combination packages where an

industry member packages a non-alcoholic item with distilled spirits,

wine, or malt beverages and, in particular, paragraph (c) requires that

the cost of the combination package be passed on to the retailer. The

petitioners recommend deleting paragraph (c) of Sec. 6.93 because they

feel the condition imposed by the paragraph is really a pricing

decision outside of ATF's regulation under the FAA Act. ATF proposes

removing all the conditions currently imposed on combination packages.

Section 6.94, Educational Seminars

ATF proposes to clarify the final sentence, ``This does not

authorize an industry member to pay a retailer's expenses in

conjunction with an educational seminar.'' by adding the explanatory

phrase ``(such as travel, lodging, and meals).''

Section 6.98, Advertising Service

The petitioners recommend adding the clause ``except where the

exclusive retailer in the state is a state agency'' to paragraph (a) to

read as follows: ``Sec. 6.98 Advertising service (a) The advertisement

does not also contain the retail price of the product, except where the

exclusive retailer in the state is a state agency, and * * *''

The petitioners do not believe that the objectives of section

105(b) of the FAA Act are served by prohibiting industry members from

advertising control States' prices. The petitioners' proposed revision

would permit an industry member to advertise a control State's state-

wide retail prices as determined by that State for product sold within

the State. The petitioners feel that in such circumstances, there is no

possibility of any ``inducement'' or ``exclusion'' that would

contravene the intent or purpose of the FAA Act.

ATF proposes amending the current regulation in accordance with the

industry request, modified to reflect situations in which the sole

retailer in a jurisdiction is a State or local agency. ATF also

proposes to delete the condition that an advertisement placed by an

industry member may not mention events or promotions at a retail

establishment.

Section 6.99, Stocking, Rotation, and Pricing Service

The petitioners recommend revising this section to allow industry

members to also ``recommend shelf plans.'' The petitioners feel that

this revision would permit an industry member to provide services to a

retailer consistent with present day marketplace realities. ATF

proposes to amend this section in line with the petitioners' proposal.

Section 6.100, Participation in Retailer Association Activities

Section 6.100 permits industry members to participate in retailer

association activities under certain circumstances. Paragraphs (b) and

(d) permit rental of display booth space and purchase of tickets or

payment of registration fees, respectively. Each of these paragraphs

contains the phrase ``if * * * not excessive and * * * the same as paid

by all exhibitors.'' ATF proposes amending the section to delete ``not

excessive'' and specifying the fees must be the same as the fees paid

by all exhibitors ``at that event.'' ATF also proposes raising the

limitation for payments for advertisements in programs or brochures

authorized by paragraph (e) from $100 to $500.

Section 6.101, Merchandise

Paragraph (a) currently provides that an industry member who also

is engaged in business as a bona fide vendor of other merchandise may

sell such merchandise to a retailer if three conditions are met, the

first of which is that merchandise is ``sold at its fair market

value.'' The petitioners believe, however, that ATF has no authority to

regulate or condition legitimate marketing practices pertaining to bona

fide sales of non-alcoholic beverage products. Accordingly, the

petitioners recommend changing this condition to state that the

merchandise is ``furnished, distributed, or sold according to the

custom and practice of that business.''

The petitioners also recommend eliminating paragraph (b) regarding

things of value covered in other sections of part 6 since they believe

it is redundant and unnecessary in light of other sections of subpart

D.

ATF believes that the elimination of the phrase, ``* * * fair

market value,'' from paragraph (a), as proposed by the petitioners,

would result in an ambiguous regulation. The phrase is used in other

parts of the regulations. The adoption of the phrase ``* * * custom and

practice of that business,'' would be inconsistent and potentially

confusing. Additionally, ATF believes that the elimination of paragraph

(b) of this regulation would be a mistake. Paragraph (b) is a necessary

clarifying paragraph for the section.

As discussed above, Sec. 6.101 excepts from the prohibitions of

section 105(b)(3) of the FAA Act sales transactions by industry members

who are engaged in the business as bona fide vendors of other

merchandise in addition to alcoholic beverages. This section sanctions

sales of other merchandise to retailers in addition to alcoholic

beverages if the merchandise is sold at its fair market value, not in

combination with distilled spirits, wines, or malt beverages, and the

merchandise is itemized separately on the industry member's invoices

and other records. The records are necessary so that ATF can determine

the real cost of the merchandise to the industry member and whether the

industry member is reselling the merchandise to retailers at its fair

market value. Likewise, ATF needs these records to determine whether

the industry member is a bona fide vendor of the merchandise or whether

it is using the merchandise as a means to induce.

Accordingly, ATF is proposing to revise the records requirement of

the regulation to state that, first, acquisition costs must appear on

the industry member's purchase invoices (available upon request to ATF)

and, second, the merchandise and the distilled spirits, wines, or malt

beverages sold to the retailer in a single sales transaction must be

itemized separately on the same invoice.

Section 6.102, Outside Signs

ATF is proposing a new section allowing outside signs in certain

circumstances and with a $500 limit.

27 CFR Part 8, Exclusive Outlet

New administrative provisions and definition changes were discussed

previously.

Section 8.23, Third Party Arrangements

The current regulation can be interpreted to mean that a violation

of the section could occur if a third party requires the retailer to

use an industry member's product without the knowledge of the industry

member. ATF proposes clarifying that the industry member's requirement,

by agreement or otherwise, with a third party is necessary to violate

this section. However, the requirement need not originate with the

industry member. If the industry member knows or is aware that the

third party controlling the retailer extends such a requirement with

respect to the products of the industry member making payments under

the arrangement, and the industry member avails itself of such

requirement, then the requirement within the proscription of the FAA

Act is present.

27 CFR Part 10, Commercial Bribery

New administrative provisions and definition changes were discussed

previously.

Section 10.4, Jurisdictional Limits

ATF proposes amending this section to correct the wording of

paragraph (a)(1), which appeared in error in ATF TD-74 on September 3,

1980 (45 FR 63242).

The proposed section would read as follows: ``Sec. 10.4

Jurisdictional limits. (a) General. The regulations in this part apply

where: (1) The industry member induces a trade buyer to purchase

distilled spirits, wine, or malt beverages from such industry member to

the exclusion, in whole or in part, of products sold or offered for

sale by other persons in interstate or foreign commerce; and * * *''

Section 10.23, Gifts or Payments to Wholesalers

This section is considered for revision because ATF feels that its

purpose should be clarified. The following example of a sales

representative incentive program is viewed as being within the

commercial bribery provision: An industry member and a trade buyer meet

to discuss, among other things, upcoming programs to promote a

particular product or products. They agree that certain promotions will

be run over a period of time. Some of these promotions include sales

incentive programs in which sales representatives can win money and/or

prizes. At the conclusion of the meeting, the parties agree or

understand, or it is implied, that all or part of the funding for these

sales representative incentive programs will come from monies that have

been or will be provided by the industry member, usually under the

guise of unrestricted funds.

ATF's position is that the above example is an instance of

commercial bribery since it involves the furnishing of a premium or

bonus to an employee of a trade buyer. While no change to the language

of the section is proposed at this time, ATF solicits comments on

whether the section is unclear or ambiguous.

27 CFR Part 11, Consignment Sales

New administrative provisions and definition changes were discussed

previously.

Section 11.24, Other Than Bona Fide Sale

Section 105(d) of the Act addresses ``consignment sales.'' Section

105(d) describes consignment sales to include conditional sales (i.e.,

where an industry member is not paid for products until they are sold

by a trade buyer); sales with a privilege of return (i.e., where an

industry member agrees to repurchase products that remain unsold by the

trade buyer at the end of a specified period of time); and other sales

on any basis otherwise than a bona fide sale.

Consignment sales are essentially arrangements pursuant to which

the risk, or cost, of non-sale of a product is retained by an industry

member, or transferred from a trade buyer back to an industry member at

the expiration of a specified time period. ATF is proposing to add a

new Sec. 11.24 to its regulations to specify certain other

arrangements, in addition to conditional sales and sales with a

privilege of return, in which the risk of non-sale is transferred from

the trade buyer back to the industry member and which therefore do not

constitute bona fide sales.

In particular, the proposed rule specifies that so-called

``slotting allowances,'' arrangements pursuant to which an industry

member makes payments to a trade buyer, ostensibly for shelf space, are

a form of consignment sale. The practical effect of ``slotting

allowances'' is to refund, in whole or in part, the purchase price of a

product that has not been sold, in proportion to the period of time

that it remains unsold.

At a minimum, payment of ``slotting allowances'' may reimburse the

trade buyer for the cost of shelf space occupied by the industry

member's products. In addition, it may also compensate the trade buyer

for the lost opportunity cost of having capital tied up in inventory

acquired from the industry member. Ultimately, the amount refunded by

this mechanism can, over any specified period of time, be the economic

equivalent of simply buying back a product at the end of that period of

time.

ATF believes that its regulations should address all arrangements

that clearly embody the substance of the ``consignment sale'' practice

proscribed by Congress, and not merely particular forms of that

practice. Therefore, ATF proposes to amend its regulations to specify

payment of ``slotting allowances'' from an industry member to a trade

buyer as a form of consignment sale.

Section 11.32, Defective Products

The current regulation specifically allows products which are

unmarketable for certain reasons to be exchanged, under certain

conditions, for an equal quantity of identical products, but is silent

as to whether such products may be returned for cash or credit.

Industry Circular 81-11 states that a return of such products for cash

or credit is not precluded by section 11.32. ATF proposes changing this

regulation to incorporate the provisions of Industry Circular 81-11

into the section. The revised section would also delete references to

mutilated and missing strip stamps since they are no longer a

requirement.

Section 11.34, Products Which May No Longer Be Lawfully Sold

ATF proposes revising the current regulation to allow the return of

a product if, due to a change in law or regulation over which the trade

buyer has no control, a particular size or brand is no longer permitted

to be sold. The addition of the phrase ``over which the trade buyer has

no control'' is intended to address situations in which the trade buyer

is a State agency with the authority to delist a particular product.

Section 11.35, Termination of Business

ATF proposes revising this section to cite Sec. 11.39 instead of

the incorrect Sec. 11.40 citation.

Executive Order 12866

It has been determined that this proposed rule is not a

significant regulatory action as defined by Executive Order 12866.

Therefore, a Regulatory Assessment is not required.

Regulatory Flexibility Act

Based on information currently available, it is hereby certified

under the provisions of section 3 of the Regulatory Flexibility Act (5

U.S.C. 605(b)) that this proposed regulation, if adopted, will not have

a significant economic impact on a substantial number of small

entities. Accordingly, a regulatory flexibility analysis is not

required. It has been suggested, however, that implementing the

proposed interpretation of exclusion may have the effect of

``freezing'' industry member standings where they are. For instance, a

large wholesaler might be in a better position to offer

indiscriminately premiums for volume purchases, and retain a

competitive advantage over a small wholesaler who could not afford to

offer a similar inducement to all customers. On the trade buyer side, a

small retailer might be more likely to lose its freedom in purchasing

decisions because of a relatively minor service or piece of equipment

it receives from a particular supplier. Although ATF believes that the

proposed regulations are required to bring ATF's policy into

conformance with Federal court decisions on the FAA Act, ATF requests

the comments of small businesses and their representatives on this

subject. We will review this certification in light of any pertinent

comments we may receive.

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has been submitted to the Office of Management and Budget

for review in accordance with the Paperwork Reduction Act of 1980 (44

U.S.C. 3504(h)). Comments on the collection of information should be

directed to the Office of Management and Budget, Attention: Desk

Officer for the Department of the Treasury, Bureau of Alcohol, Tobacco

and Firearms, Office of Information and Regulatory Affairs, Washington,

DC 20503, with copies to: Reports Management Officer, Information

Programs Branch, Room 3450, Bureau of Alcohol, Tobacco and Firearms,

650 Massachusetts Avenue, NW., Washington, DC 20226.

The collection of information in this regulation is in 27 CFR parts

6, 8, and 10. This information is required by ATF to protect the public

interest and ensure fair trade competition in the alcoholic beverage

industry. The information will be used to analyze promotional

activities as part of an investigation. The likely respondents are

industry members.

The authority to require reports which is stated in this notice of

proposed rulemaking is to be used on a case-by-case basis only, and

does not apply to industry members in general. The estimated number of

respondents in any given year is 20, with one report being required

from each respondent. The estimated average annual burden associated

with this collection of information is 1 hour per respondent.

Public Participation

ATF requests comments from all interested persons. Comments

received no later than the closing date of the comment period will be

carefully considered. Comments received after the closing date and too

late for consideration will be treated as possible suggestions for

future ATF action. ATF will not recognize any comment as confidential.

Comments may be disclosed to the public. Any material which the

respondent considers to be confidential or inappropriate for disclosure

should not be included in the comment. The name of the person

submitting the comment is public information.

Public Hearings

It is anticipated that two public hearings will be held following

the close of the written comment period. One hearing will be in

Washington, D.C. and one in San Francisco, California. A separate

notice announcing the times and places of the hearings will be

published in a future Federal Register.

Drafting Information

The principal author of this document is Marjorie Ruhf, Wine and

Beer Branch, Bureau of Alcohol, Tobacco and Firearms.

Treatment of Rulings and Circulars

The following revenue ruling, ATF ruling and industry circulars

will be incorporated into the proposed regulations, or their provisions

will become obsolete at the time these proposed regulations become

effective: Revenue Ruling 54-162, 1954-1 C.B. 340; ATF Ruling 81-1,

1981-2 ATF Q.B. 27 and ATF Ruling 81-6, 1981-4 ATF Q.B. 23; Industry

Circulars 81-11 and 81-16.

List of Subjects

27 CFR Part 6

Advertising, alcohol and alcoholic beverages, antitrust, credit and

trade practices.

27 CFR Part 8

Alcohol and alcoholic beverages, antitrust, and trade practices.

27 CFR Part 10

Alcohol and alcoholic beverages, antitrust, and trade practices.

27 CFR Part 11

Alcohol and alcoholic beverages, antitrust, and trade practices.

Issuance

Title 27, Chapter I, is proposed to be amended as follows:

PART 6--``TIED-HOUSE''

Paragraphs 1-2. The authority citation for Part 6 is revised to

read as follows:

Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.

3504(h).

Par. 3. Section 6.1 is revised to read as follows:

Sec. 6.1 General.

The regulations in this part, issued pursuant to section 105 of the

Federal Alcohol Administration Act (27 U.S.C. 205), specify practices

that are means to induce under 105(b), criteria for determining whether

a practice is a violation of 105(b), and exceptions to 105(b). This

part does not attempt to enumerate all of the practices that may be a

violation of section 105(b) of the Act. Nothing in this part shall

operate to exempt any person from the requirements of any State law or

regulation.

Sec. 6.4 [Amended]

Par. 4. Section 6.4 is amended by removing the reference to

``section 5(b) of the Federal Alcohol Administration Act'' where it

appears in paragraph (b) and replacing it with a reference to ``section

105(b) of the Federal Alcohol Administration Act''.

Par. 5. Section 6.5 is added to subpart A to read as follows:

Sec. 6.5 Administrative provisions.

(a) General. The Act makes applicable the provisions including

penalties of sections 49 and 50 of title 15, United States Code, to the

jurisdiction, powers and duties of the Director under this Act, and to

any person (whether or not a corporation) subject to the provisions of

law administered by the Director under this Act.

(b) Examination and subpoena. The Director or any authorized ATF

officers shall at all reasonable times have access to, for the purpose

of examination, and the right to copy any documentary evidence of any

person, partnership, or corporation being investigated or proceeded

against; and the Director shall have the power to require by subpoena

the attendance and testimony of witnesses and the production of all

such documentary evidence relating to any matter under investigation.

(c) Reports required by the regional director (compliance).--(l)

General. When required in writing by the regional director

(compliance), an industry member shall submit a written report

containing information on sponsorships, advertisements, promotions, and

other activities pertaining to its business subject to the Act

conducted by, or on behalf of, or benefiting the industry member.

(2) Preparation. The report will be prepared by the industry member

in letter form, executed under the penalties of perjury, and will

contain the information specified by the regional director

(compliance).

(3) Filing. The report will be filed in accordance with the

instructions of the regional director (compliance). (27 U.S.C. 202(c)

and (d)).

Par. 6. Section 6.11 is amended by adding the definitions for ``ATF

officer,'' ``Director,'' ``brand'' and ``regional director

(compliance),'' and by revising the term ``retailer establishment'' to

read ``retail establishment''. as follows:

Sec. 6.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of the Bureau of Alcohol,

Tobacco and Firearms (ATF) authorized to perform any function relating

to the administration or enforcement of this part.

Brand. The term ``brand'' refers to differences in the brand name

of a product or in the nature of a product. Examples of different

brands are products having a different brand name; class, type, or kind

designation; appellation of origin (wine); vintage date (wine); age

(distilled spirits); or percentage of alcohol. Differences in packaging

such as difference in label design or color, or a different style, type

or size of container are not considered different brands.

Director. The Director, Bureau of Alcohol, Tobacco and Firearms,

the Department of the Treasury, Washington, DC.

* * * * *

Regional director (compliance). The principal ATF regional official

responsible for administering regulations in this part.

* * * * *

Retail establishment. * * *

Par. 7. Section 6.25 is revised to read as follows:

Sec. 6.25 General.

The act by an industry member of acquiring or holding any interest

in any license (State, county or municipal) with respect to the

premises of a retailer constitutes a means to induce within the meaning

of the Act.

Par. 8. Section 6.27 is amended by revising paragraph (a) to read

as follows:

Sec. 6.27 Proprietary interest.

(a) Complete ownership. Outright ownership of a retail business by

an industry member is not an interest which may result in a violation

of section 105(b)(1) of the Act.

* * * * *

Par. 9. Section 6.31 is revised to read as follows:

Sec. 6.31 General.

The act by an industry member of acquiring an interest in real or

personal property owned, occupied, or used by the retailer in the

conduct of business constitutes a means to induce within the meaning of

the Act.

Par. 10. Section 6.33 is amended by revising paragraph (a) to read

as follows:

Sec. 6.33 Proprietary interest.

(a) Complete ownership. Outright ownership of a retail business by

an industry member is not an interest that may result in a violation of

section 105(b)(2) of the Act.

* * * * *

Par. 11. Section 6.41 is revised to read as follows:

Sec. 6.41 General.

Subject to the exceptions listed in Subpart D, the act by an

industry member of furnishing, giving, renting, lending, or selling any

equipment, fixtures, signs, supplies, money, services, or other things

of value to a retailer constitutes a means to induce within the meaning

of the Act.

Par. 12. Section 6.42 is revised to read as follows:

Sec. 6.42 Indirect inducement through third party arrangements.

The furnishing, giving, renting, lending, or selling of equipment,

fixtures, signs, supplies, money, services, or other thing of value by

an industry member to a third party, where the benefits resulting from

such things of value flow to individual retailers, is the indirect

furnishing of a thing of value within the meaning of the Act. Indirect

furnishing of a thing of value includes, but is not limited to, making

payments for advertising to a retailer association or a display company

where the resulting benefits flow to individual retailers. Things which

may lawfully be furnished, given, rented, lent, or sold by industry

members to retailers under subpart D or E may also be furnished

directly by a third party to a retailer.

Par. 13. Section 6.43 is amended by removing the reference

``Secs. 6.88 and 6.89,'' where it appears in the first sentence and

replacing it with ``Sec. 6.88,''.

Par. 14. Sections 6.46 and 6.47 are removed and reserved.

Par. 15. Section 6.51 is revised to read as follows:

Sec. 6.51 General.

The act by an industry member of paying or crediting a retailer for

any advertising, display, or distribution service constitutes a means

to induce within the meaning of the Act, whether or not the

advertising, display, or distribution service received may be

commensurate with the cost paid or incurred by, or on behalf of, the

retailer.

Par. 16. Section 6.52 is revised to read as follows:

Sec. 6.52 Cooperative advertising.

An arrangement in which an industry member participates with a

retailer in paying for an advertisement constitutes paying the retailer

for advertising within the meaning of the Act unless excepted under

Sec. 6.98.

Par. 17. Section 6.61 is revised to read as follows:

Sec. 6.61 Guaranteeing loans.

The act by an industry member of guaranteeing any loan or the

repayment of any financial obligation by a retailer constitutes a means

to induce within the meaning of the Act.

Par. 18. Section 6.65 is revised to read as follows:

Sec. 6.65 General.

Extension of credit by an industry member to a retailer for a

period of time in excess of 30 days from the date of delivery

constitutes a means to induce within the meaning of the Act.

Par. 19. The text of Sec. 6.67 is added to read as follows:

Sec. 6.67 Sales to retailer whose account is in arrears.

An extension of credit by an industry member to a retailer does not

constitute a means to induce within the meaning of the Act so long as a

current order from a retailer whose account is in arrears is

accompanied with a payment equal to or greater than the value of such

current order, regardless of the manner in which the industry member

applies the payment in its records.

Par. 20. Section 6.71 is revised to read as follows:

Sec. 6.71 Quota sales.

The act by an industry member of requiring a retailer to take and

dispose of any quota of distilled spirits, wine, or malt beverages

constitutes a means to induce within the meaning of the Act.

Par. 21. Section 6.72 is revised to read as follows:

Sec. 6.72 ``Tie-in'' sales.

The act by an industry member of requiring that a retailer purchase

one product in order to obtain another constitutes a means to induce

within the meaning of the Act. This includes the requirement to take a

minimum quantity of a product in standard packaging in order to obtain

the same product in some type of premium package, i.e., a distinctive

decanter, or wooden or tin box. This also includes combination sales if

one or more products may be purchased only in combination with other

products and not individually. However, an industry member is not

precluded from selling two or more kinds or brands of products to a

retailer at a special combination price, provided (a) the retailer has

the option of purchasing either product at the usual price, and (b) the

retailer is not required to purchase any product it does not want.

Par. 22. Section 6.81 is amended by revising paragraph (a), by

removing the references to Secs. 6.85, 6.89, 6.90 in the first sentence

of paragraph (b), and by adding concluding text to the end of paragraph

(b), to read as follows:

Sec. 6.81 General.

(a) Application. Section 105(b)(3) of the Act enumerates means to

induce that may be unlawful under the subsection, subject to such

exceptions as are prescribed in regulations, having due regard for

public health, the quantity and value of articles involved, established

trade customs not contrary to the public interest, and the purposes of

that section. This subpart implements section 105(b)(3) and identifies

the practices that are exceptions to section 105(b)(3). An industry

member may furnish a retailer equipment, inside signs, supplies,

services, or other things of value, under the conditions and within the

limitations prescribed in this subpart.

(b) * * *

Failure to keep such records may result in loss of the exception

claimed. No separate recordkeeping violation is present.

* * * * *

Sec. 6.82 [Removed]

Par. 23. Section 6.82 is removed and reserved.

Par. 24. Section 6.83 is revised to read as follows:

Sec. 6.83 Product displays.

(a) General. The act by an industry member of giving or selling

product displays to a retailer does not constitute a means to induce

within the meaning of section 105(b)(3) of the Act provided that the

conditions prescribed in paragraph (c) of this section are met.

(b) Definition. ``Product display'' means any wine racks, bins,

barrels, casks, shelving, and similar items the primary function of

which is to hold and display consumer products.

(c) Conditions and limitations. (1) The total value of all product

displays furnished by an industry member under paragraph (a) of this

section may not exceed $500 per brand at any one time in any one retail

establishment. Industry members may not pool or combine dollar

limitations in order to provide a retailer a product display valued in

excess of $500 per brand. The value of a product display is the actual

cost to the industry member who initially purchased it. Transportation

and installation costs are excluded.

(2) All product displays must bear conspicuous and substantial

advertising matter on the product or the industry member which is

permanently inscribed or permanently affixed. The name and address of

the retailer may appear on the product displays.

(3) The giving or selling of such product displays may be

conditioned upon the purchase of the distilled spirits, wine, or malt

beverage product advertised on those displays in a quantity necessary

for the completion of such display or the use of such materials. No

other condition can be imposed by the industry member on the retailer

in order for the retailer to receive or obtain the product display.

Par. 25. Section 6.84 is revised to read as follows:

Sec. 6.84 Point of sale advertising and consumer advertising

specialties.

(a) General. The act by an industry member of giving or selling

point of sale advertising materials and consumer advertising

specialties to a retailer does not constitute a means to induce within

the meaning of section 105(b)(3) of the Act provided that the

conditions prescribed in paragraph (c) of this section are met.

(b) Definitions--(1) Point of sale advertising materials are items

designed to be used within a retail establishment to attract consumer

attention to the products of the industry member. Such materials

include, but are not limited to:

(i) Inside signs, such as posters, placards, designs, and window

decorations;

(ii) Retailer advertising specialties, such as trays, coasters,

mats, menu cards, meal checks, paper napkins, foam scrapers, back bar

mats, thermometers, clocks, and calendars; and

(iii) Lists or menus.

(2) Consumer advertising specialties are items that are designed to

be carried away by the consumer, such as trading stamps, nonalcoholic

mixers, pouring racks, ash trays, bottle or can openers, cork screws,

shopping bags, matches, printed recipes, pamphlets, cards, leaflets,

blotters, post cards, pencils, shirts, caps, and visors.

(c) Conditions and limitations. (1) All point of sale advertising

materials and consumer advertising specialties must bear conspicuous

and substantial advertising matter about the product or the industry

member which is permanently inscribed or permanently affixed. The name

and address of the retailer may appear on the point of sale advertising

materials.

(2) With respect to retailer and consumer advertising specialties,

the industry member may not directly or indirectly pay or credit the

retailer for using or distributing the advertising materials or for any

expense incidental to their use.

Par. 26. Section 6.85 is revised to read as follows:

Sec. 6.85 Temporary retailers.

(a) General. The furnishing of things of value to a temporary

retailer does not constitute a means to induce within the meaning of

section 105(b)(3) of the Act.

(b) Definition. A temporary retailer is a dealer who is not engaged

in business as a retailer for more than four consecutive days per

event, and for not more than five events in a calendar year.

Par. 27. Sections 6.86 and 6.87 are removed and reserved.

Par. 28. Section 6.88 is revised to read as follows:

Sec. 6.88 Equipment and supplies.

(a) General. The act by an industry member of selling equipment or

supplies to a retailer does not constitute a means to induce within the

meaning of section 105(b)(3) of the Act if the equipment or supplies

are sold at a price not less than the cost to the industry member who

initially purchased them, and if the price is collected within 30 days

of the date of the sale. The act by an industry member of installing

dispensing accessories at the retailer's establishment does not

constitute a means to induce within the meaning of the Act as long as

the retailer bears the cost of initial installation. The act by an

industry member of furnishing, giving, or selling coil cleaning service

to a retailer of distilled spirits, wine, or malt beverages does not

constitute a means to induce within the meaning of section 105(b)(3) of

the Act.

(b) Definition. Equipment and supplies means glassware (or similar

containers made of other material), dispensing accessories, carbon

dioxide (and other gasses used in dispensing equipment) or ice.

Dispensing accessories include items such as standards, faucets, cold

plates, rods, vents, taps, tap standards, hoses, washers, couplings,

gas gauges, vent tongues, shanks, and check valves.

Par. 29. Sections 6.89 and 6.90 are removed and reserved.

Par. 30. Section 6.91 is revised to read as follows:

Sec. 6.91 Samples.

The act by an industry member of furnishing or giving a sample of

distilled spirits, wine, or malt beverages to a retailer who has not

previously purchased the brand from that industry member does not

constitute a means to induce within the meaning of section 105(b)(3) of

the Act. For each retail establishment the industry member may give not

more than 3 gallons of any brand of malt beverage, and not more than 3

liters of any brand of wine or distilled spirits. Where a retailer owns

multiple retail establishments and purchasing decisions are made at a

central location, no more than four retail establishments owned by that

retailer may receive samples. If a particular product is not available

in a size within the quantity limitations of this section, an industry

member may furnish to a retailer the next larger size.

Par. 31. Section 6.92 is amended by removing the word ``loaned''

where it appears and replacing it with the word ``lent.''

Par. 32. Section 6.93 is revised to read as follows:

Sec. 6.93 Combination packaging.

The act by an industry member of packaging and distributing

distilled spirits, wine, or malt beverages in combination with other

(non-alcoholic) items does not constitute a means to induce within the

meaning of section 105(b)(3) of the Act.

Par. 33. Section 6.94 is amended by adding the phrase ``(such as

travel, lodging, and meals)'' before the period in the final sentence

of the section.

Par. 34. Section 6.96 is amended by revising paragraph (a) to read

as follows:

Sec. 6.96 Consumer promotions.

(a) Coupons. The act by an industry member of furnishing to

consumers coupons which are redeemable at a retail establishment does

not constitute a means to induce within the meaning of section

105(b)(3) of the Act, provided the following conditions are met: (1)

Redemption of such coupons may not be limited to a particular retailer

or group of retailers; and

(2) An industry member may not reimburse a retailer for more than

the face value of all coupons redeemed, plus a usual and customary

handling fee for the redemption of coupons.

* * * * *

Par. 35. Section 6.97 is removed and reserved.

Par. 36. Section 6.98 is revised to read as follows:

Sec. 6.98 Advertising service.

The listing of the names and addresses of two or more retailers

selling the products of an industry member in an advertisement of that

industry member does not constitute a means to induce within the

meaning of section 105(b)(3) of the Act, provided:

(a) The advertisement does not also contain the retail price of the

product (except where the exclusive retailer in the jurisdiction is a

State or local agency), and

(b) The listing is the only reference to the retailers in the

advertisement and is relatively inconspicuous in relation to the

advertisement as a whole, and

(c) The advertisement does not refer only to one retailer or only

to retail establishments controlled directly or indirectly by the same

retailer, except where the retailer is an agency of a State or a

political subdivision of a State.

Par 37. Section 6.99 is revised to read as follows:

Sec. 6.99 Stocking, rotation, and pricing service.

(a) General. Industry members may, at a retail establishment,

stock, rotate and affix the price to distilled spirits, wine, or malt

beverages which they sell, provided products of other industry members

are not altered or disturbed. The rearranging or resetting of all or

part of a store or liquor department is not hereby authorized.

(b) Shelf plan and shelf schematics. The act by an industry member

of providing a recommended shelf plan or shelf schematic for distilled

spirits, wine, or malt beverages does not constitute a means to induce

within the meaning of section 105(b)(3) of the Act.

Par 38. Section 6.100 is revised to read as follows:

Sec. 6.100 Participation in retailer association activities.

The following acts by an industry member participating in retailer

association activities do not constitute a means to induce within the

meaning of section 105(b)(3) of the Act:

(a) Displaying its products at a convention or trade show,

(b) Renting display booth space if the rental fee is the same as

paid by all exhibitors at the event,

(c) Providing its own hospitality which is independent from

association sponsored activities,

(d) Purchasing tickets to functions and paying registration fees if

the payments or fees are the same as paid by all exhibitors at the

event, and

(e) Making payments for advertisements in programs or brochures

issued by retailer associations at a convention or trade show if the

total payments made by an industry member for all such advertisements

do not exceed $500 per year for any retailer association.

Par. 39. Section 6.101 is revised to read as follows:

Sec. 6.101 Merchandise.

(a) General. The act by an industry member, who is also in business

as a bona fide vendor of other merchandise (for example, groceries or

pharmaceuticals), of selling that merchandise to a retailer does not

constitute a means to induce within the meaning of section 105(b)(3) of

the Act, provided:

(1) The merchandise is sold at its fair market value, and

(2) The merchandise is not sold in combination with distilled

spirits, wines, or malt beverages, and

(3) The industry member's acquisition costs of the merchandise

appears on the industry member's purchase invoices or other records,

and

(4) Merchandise and distilled spirits, wines, or malt beverages

sold in a single transaction are itemized separately on the same

invoice covering the sales transaction.

(b) Things of value covered in other sections of this part. The act

by an industry member of providing equipment, fixtures, signs,

glassware, supplies, services, and advertising specialties to retailers

does not constitute a means to induce within the meaning of section

105(b)(3) of the Act only as provided in other sections within this

part.

Par. 40. A new Sec. 6.102 is added to subpart D to read as follows:

Sec. 6.102 Outside signs.

(a) The act by an industry member of furnishing outside signs to a

retailer does not constitute a means to induce within the meaning of

section 105(b)(3) of the Act provided that:

(1) The retailer is not compensated, directly or indirectly such as

through a sign company, for displaying the signs, and

(2) The cost of the signs may not exceed $500.

Par. 41. Part 6 is amended by adding a new subpart E to read as

follows:

Subpart E--Exclusion

6.151 Exclusion, in general.

6.152 Practices which put retailer independence at risk.

6.153 Criteria for determining retailer independence.

Subpart E--Exclusion

Sec. 6.151 Exclusion, in general.

(a) Exclusion, in whole or in part occurs:

(1) When a practice by an industry member, whether direct,

indirect, or through an affiliate, places retailer independence at risk

by means of a tie or link between the industry member and retailer or

by any other means of industry member control over the retailer, and

(2) Such practice results in the retailer purchasing less than it

would have of a competitor's product.

(b) Section 6.152 lists practices that create a tie or link that

places retailer independence at risk. Section 6.153 lists the criteria

used for determining whether other practices can put retailer

independence at risk.

Sec. 6.152 Practices which put retailer independence at risk.

The practices specified in this section put retailer independence

at risk. The practices specified here are examples and do not

constitute a complete list of those practices that put retailer

independence at risk.

(a) The act by an industry member of resetting stock on a

retailer's premises (other than stock offered for sale by the industry

member).

(b) The act by an industry member of purchasing or renting specific

shelf space (e.g., slotting allowance) where such purchase reduces the

availability on other shelf space of the distilled spirits, wine or

malt beverages of another industry member.

(c) Ownership by an industry member of less than a 100 percent

interest in a retailer.

(d) The act by an industry member of requiring a retailer to

purchase one alcoholic beverage product in order to be allowed to

purchase another alcoholic beverage product at the same time.

Sec. 6.153 Criteria for determining retailer independence.

The criteria specified in this section are indications that a

particular practice, other than those in Sec. 6.152, places retailer

independence at risk. A practice need not meet all of the criteria

specified in this section in order to place retailer independence at

risk.

(a) The practice restricts or hampers the free economic choice of a

retailer to decide which products to purchase and the quantity in which

to purchase them for sale to consumers.

(b) The industry member obligates the retailer to participate in

the promotion to obtain the industry member's product.

(c) The retailer has a continuing obligation to purchase or

otherwise promote the industry member's product.

(d) The retailer has a commitment not to terminate its relationship

with the industry member with respect to purchase of the industry

member's products.

(e) The practice involves the industry member in the day-to-day

operations of the retailer. For example, the industry member controls

the retailer's decisions on which brand of products to purchase, the

pricing of products, or the manner in which the products will be

displayed on the retailer's premises.

(f) The practice is discriminatory in that it is not offered to all

retailers in the local market on the same terms without business

reasons present to justify the difference in treatment.

PART 8--EXCLUSIVE OUTLETS

Par. 42-43. The authority citation for part 8 is revised to read as

follows:

Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.

3504(h).

Par. 44. Section 8.1 is revised to read as follows:

Sec. 8.1 General.

The regulations in this part, issued pursuant to section 105 of the

Federal Alcohol Administration Act (27 U.S.C. 205), specify

arrangements which are exclusive outlets under section 105(a) and

criteria for determining whether a practice is a violation of section

105(a). This part does not attempt to enumerate all of the practices

prohibited by section 105(a) of the Act. Nothing in this part shall

operate to exempt any person from the requirements of any State law or

regulation.

Par. 45. Section 8.5 is added to subpart A to read as follows:

Sec. 8.5 Administrative provisions.

(a) General. The Act makes applicable the provisions including

penalties of sections 49 and 50 of Title 15, United States Code, to the

jurisdiction, powers and duties of the Director under this Act, and to

any person (whether or not a corporation) subject to the provisions of

law administered by the Director under this Act.

(b) Examination and subpoena. The Director or any authorized ATF

officers shall at all reasonable times have access to, for the purpose

of examination, and the right to copy any documentary evidence of any

person, partnership, or corporation being investigated or proceeded

against; and the Director shall have the power to require by subpoena

the attendance and testimony of witnesses and the production of all

such documentary evidence relating to any matter under investigation.

(c) Reports requested by the regional director (compliance)--(1)

General. When required in writing by the regional director

(compliance), an industry member shall submit a written report

containing information on sponsorships, advertisements, promotions, and

other activities pertaining to its business subject to the Act

conducted by, or on behalf of, or benefiting the industry member.

(2) Preparation. The report will be prepared by the industry member

in letter form, executed under the penalties of perjury, and will

contain the information specified by the regional director

(compliance).

(3) Filing. The report will be filed in accordance with the

instructions of the regional director (compliance). (27 U.S.C. 202(c)

and (d))

Par. 46. Section 8.11 is amended by removing the definition for the

term ``retail establishment'' and by adding definitions for ``ATF

officer,'' ``Director'' and ``regional director (compliance)'' as

follows:

Sec. 8.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of the Bureau of Alcohol,

Tobacco and Firearms (ATF) authorized to perform any function relating

to the administration or enforcement of this part.

Director. The Director, Bureau of Alcohol, Tobacco and Firearms,

the Department of the Treasury, Washington, DC.

* * * * *

Regional director (compliance). The principal ATF regional official

responsible for administering regulations in this part.

* * * * *

Par. 47. Section 8.23 is revised to read as follows:

Sec. 8.23 Third party arrangements.

Industry member requirements, by agreement or otherwise, with non-

retailers that result in a retailer being required to purchase the

industry member's products are within the exclusive outlet provisions.

These industry member requirements are covered whether the agreement or

other arrangement originates with the industry member or the third

party. For example, a supplier enters into a contractual agreement or

other arrangement with a third party. This agreement or arrangement

contains an industry member requirement as described above. The third

party, a ballclub, or municipal or private corporation, not acting as a

retailer, leases the concession rights and is able to control the

purchasing decisions of the retailer. The third party, as a result of

the requirement, by agreement or otherwise, with the industry member,

requires the retailer to purchase the industry member's products to the

exclusion, in whole or in part, of products sold or offered for sale by

other persons in interstate or foreign commerce. The business

arrangements entered into by the industry member and the third party

may consist of such things as sponsoring radio or television

broadcasting, paying for advertising, or providing other services or

things of value.

Par. 48. Part 8 is amended by adding a new Subpart D to read as

follows:

Subpart D--Exclusion

8.51 Exclusion, in general.

8.52 Practices which result in exclusion.

8.53 Practices not resulting in exclusion.

8.54 Criteria for determining retailer independence.

Subpart D--Exclusion

Sec. 8.51 Exclusion, in general.

(a) Exclusion, in whole or in part occurs:

(1) When a practice by an industry member, whether direct,

indirect, or through an affiliate, places retailer independence at risk

by means of a tie or link between the industry member and retailer or

by any other means of industry member control over the retailer, and

(2) Such practice results in the retailer purchasing less than it

would have of a competitor's product.

(b) Section 8.52 lists practices that result in exclusion. Section

8.53 lists practices not resulting in exclusion. Section 8.54 lists the

criteria used for determining whether other practices can put retailer

independence at risk.

Sec. 8.52 Practices which result in exclusion.

The practices specified in this section result in exclusion under

section 105(a) of the Act. The practices specified here are examples

and do not constitute a complete list of such practices:

(a) Purchases of distilled spirits, wine or malt beverages by a

retailer as a result, directly or indirectly, of a threat or act of

physical or economic harm by the selling industry member.

(b) Contracts between an industry member and a retailer which

require the retailer to purchase distilled spirits, wine, or malt

beverages from that industry member and expressly restrict the retailer

from purchasing, in whole or in part, such products from another

industry member.

Sec. 8.53 Practices not resulting in exclusion.

The practices specified in this section are deemed not to result in

exclusion under section 105(a) of the Act:

(a) A supply contract for one year or less between the industry

member and retailer under which the industry member agrees to sell

distilled spirits, wine, or malt beverages to the retailer on an ``as

needed'' basis provided that the retailer is not required to purchase

any minimum quantity of such product.

(b) [Reserved]

Sec. 8.54 Criteria for determining retailer independence.

The criteria specified in this section are indications that a

particular practice, other than those in Sec. 8.52 and 8.53, places

retailer independence at risk. A practice need not meet all of the

criteria specified in this section in order to place retailer

independence at risk.

(a) The practice restricts or hampers the free economic choice of a

retailer to decide which products to purchase and the quantity in which

to purchase them for sale to consumers.

(b) The industry member obligates the retailer to participate in

the promotion to obtain the industry member's product.

(c) The retailer has a continuing obligation to purchase or

otherwise promote the industry member's product.

(d) The retailer has a commitment not to terminate its relationship

with the industry member with respect to purchase of the industry

member's products.

(e) The practice involves the industry member in the day-to-day

operations of the retailer. For example, the industry member controls

the retailer's decisions on which brand of products to purchase, the

pricing of products, or the manner in which the products will be

displayed on the retailer's premises.

(f) The practice is discriminatory in that it is not offered to all

retailers in the local market on the same terms without business

reasons present to justify the difference in treatment.

PART 10--COMMERCIAL BRIBERY

Par. 49. The authority citation for part 10 is revised to read as

follows:

Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.

3504(h).

Par. 51. Section 10.1 is revised to read as follows:

Sec. 10.1 General.

The regulations in this part, issued pursuant to section 105 of the

Federal Alcohol Administration Act (27 U.S.C. 205), specify practices

which may result in violations of section 105(c) and criteria for

determining whether a practice is a violation of section 105(c). This

part does not attempt to enumerate all of the practices prohibited by

section 105(c) of the Act. Nothing in this part shall operate to exempt

any person from the requirements of any State law or regulation.

Par. 52. Section 10.4 is amended by revising paragraph (a)(1) of

the section to read as follows:

Sec. 10.4 Jurisdictional limits.

(a) General. * * *

(1) The industry member induces a trade buyer to purchase distilled

spirits, wine, or malt beverages from such industry member to the

exclusion, in whole or in part, of products sold or offered for sale by

other persons in interstate or foreign commerce; and

Par. 53. Section 10.5 is added to subpart 4 to read as follows:

Sec. 10.5 Administrative provisions.

(a) General. The Act makes applicable the provisions including

penalties of sections 49 and 50 of Title 15, United States Code, to the

jurisdiction, powers and duties of the Director under this Act, and to

any person (whether or not a corporation) subject to the provisions of

law administered by the Director under this Act.

(b) Examination and Subpoena. The Director or any authorized ATF

officers shall at all reasonable times have access to, for the purpose

of examination, and the right to copy any documentary evidence of any

person, partnership, or corporation being investigated or proceeded

against; and the Director shall have the power to require by subpoena

the attendance and testimony of witnesses and the production of all

such documentary evidence relating to any matter under investigation.

(c) Reports requested by the regional director (compliance)--(1)

General. When required in writing by the regional director

(compliance), an industry member shall submit a written report

containing information on sponsorships, advertisements, promotions, and

other activities pertaining to its business subject to the Act

conducted by, or on behalf of, or benefiting the industry member.

(2) Preparation. The report will be prepared by the industry member

in letter form, executed under the penalties of perjury, and will

contain the information specified by the regional director

(compliance).

(3) Filing. The report will be filed in accordance with the

instructions of the regional director (compliance). (27 U.S.C. 202 (c)

and (d))

Par. 54. Section 10.11 is amended by adding definitions for ``ATF

officer,'' ``Director,'' and ``regional director (compliance)'' as

follows:

Sec. 10.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of the Bureau of Alcohol,

Tobacco and Firearms (ATF) authorized to perform any function relating

to the administration or enforcement of this part.

Director. The Director, Bureau of Alcohol, Tobacco and Firearms,

the Department of the Treasury, Washington, DC.

* * * * *

Regional director (compliance). The principal ATF regional official

responsible for administering regulations in this part.

* * * * *

Par. 55. Part 10 is amended by adding a new Subpart D to read as

follows:

Subpart D--Exclusion

10.51 Exclusion, in general.

10.52 Practices which put trade buyer independence at risk.

10.53 Practices not resulting in exclusion. [Reserved]

10.54 Criteria for determining retailer independence.

Subpart D--Exclusion

Sec. 10.51 Exclusion, in general.

(a) Exclusion, in whole or in part occurs:

(1) When a practice by an industry member, whether direct,

indirect, or through an affiliate, places trade buyer independence at

risk by means of a tie or link between the industry member and trade

buyer or by any other means of industry member control over the trade

buyer, and

(2) Such practice results in the trade buyer purchasing less than

it would have of a competitor's product. Section 10.52 lists practices

that create a tie or link that places trade buyer independence at risk.

(b) Section 10.53 is reserved and will list practices not resulting

in exclusion. Section 10.54 lists the criteria used for determining

whether other practices can put trade buyer independence at risk.

Sec. 10.52 Practices which put trade buyer independence at risk.

The practice specified in this section is deemed to place trade

buyer independence at risk within the description of exclusion in

Sec. 10.51 of the regulations. The practice enumerated here is an

example and does not constitute a complete list of those situations

which result in such control.

(a) Industry member payments of money to the employee(s) of a trade

buyer without the knowledge or consent of the trade buyer-employer in

return for the employee agreeing to order distilled spirits, wine, or

malt beverages from the industry member.

(b) [Reserved]

Sec. 10.53 Practices not resulting in exclusion. [Reserved]

Sec. 10.54 Criteria for determining trade buyer independence.

The criteria specified in this section are indications that a

particular practice, other than those in section 10.52, places trade

buyer independence at risk. A practice need not meet all of the

criteria specified in this section in order to place trade buyer

independence at risk.

(a) The practice restricts or hampers the free economic choice of a

trade buyer to decide which products to purchase and the quantity in

which to purchase them for sale to retailers and consumers.

(b) The industry member obligates the trade buyer to participate in

the promotion to obtain the industry member's product.

(c) The trade buyer has a continuing obligation to purchase or

otherwise promote the industry member's product.

(d) The trade buyer has a commitment not to terminate its

relationship with the industry member with respect to purchase of the

industry member's products.

(e) The practice involves the industry member in the day-to-day

operations of the trade buyer. For example, the industry member

controls the trade buyer's decisions on which brand of products to

purchase, the pricing of products, or the manner in which the products

will be displayed on the trade buyer's premises.

(f) The practice is discriminatory in that it is not offered to all

trade buyers in the local market on the same terms without business

reasons present to justify the difference in treatment.

PART 11--CONSIGNMENT SALES

Par. 56-57. The authority citation for 27 CFR part 11 is revised to

read as follows:

Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205.

Par. 58. Section 11.1 is revised to read as follows:

Sec. 11.1 General.

The regulations in this part, issued pursuant to section 105 of the

Federal Alcohol Administration Act (27 U.S.C. 205), specify

arrangements which are consignment sales under section 105(d) of the

Act and contain guidelines concerning return of distilled spirits, wine

and malt beverages from a trade buyer. This part does not attempt to

enumerate all of the practices prohibited by section 105(d) of the Act.

Nothing in this part shall operate to exempt any person from the

requirements of any State law or regulation.

Par. 59. Section 11.5 is added to subpart A to read as follows:

Sec. 11.5 Administrative provisions.

(a) General. The Act makes applicable the provisions including

penalties of sections 49 and 50 of Title 15, United States Code, to the

jurisdiction, powers and duties of the Director under this Act, and to

any person (whether or not a corporation) subject to the provisions of

law administered by the Director under this Act.

(b) Examination and subpoena. The Director or any authorized ATF

officers shall at all reasonable times have access to, for the purpose

of examination, and the right to copy any documentary evidence of any

person, partnership, or corporation being investigated or proceeded

against; and the Director shall have the power to require by subpoena

the attendance and testimony of witnesses and the production of all

such documentary evidence relating to any matter under investigation.

(27 U.S.C. 202 (c))

Par. 60. Section 11.11 is amended by adding definitions for ``ATF

officer'' and ``Director'' as follows:

Sec. 11.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of the Bureau of Alcohol,

Tobacco and Firearms (ATF) authorized to perform any function relating

to the administration or enforcement of this part.

Director. The Director, Bureau of Alcohol, Tobacco and Firearms,

the Department of the Treasury, Washington, DC.

* * * * *

Par. 61. A new Sec. 11.24 is added to subpart C to read as follows:

Sec. 11.24 Other than a bona fide sale.

``Other than a bona fide sale'' includes, but is not limited to,

sales in connection with which the industry member purchases or rents

the trade buyer's shelf space to be occupied by such products.

Par. 62. Section 11.32 is revised to read as follows:

Sec. 11.32 Defective products.

Products which are unmarketable because of product deterioration,

leaking containers, or damaged labels may be exchanged for an equal

quantity of identical products or may be returned for cash or credit

against outstanding indebtedness.

Par. 63. Section 11.34 is revised to read as follows:

Sec. 11.34 Products which may no longer be lawfully sold.

Products which may no longer be lawfully sold may be returned for

cash or credit against outstanding indebtedness. This would include

situations where, due to a change in law or regulation over which the

trade buyer or an affiliate of the trade buyer has no control, a

particular size or brand is no longer permitted to be sold.

Par. 64. Section 11.35 is revised to read as follows:

Sec. 11.35 Termination of business.

Products on hand at the time a trade buyer terminates operations

may be returned for cash or credit against outstanding indebtedness.

This does not include a temporary seasonal shutdown (see Sec. 11.39).

Signed: April 15, 1994.

Daniel R. Black,

Acting Director.

Approved: April 18, 1994.

John P. Simpson,

Deputy Assistant Secretary (Tariff and Trade Enforcement).

[FR Doc. 94-10041 Filed 4-22-94; 8:49 am]

BILLING CODE 4810-31-U